The Hindu Business Line : Method used to take control of Corus may change

On a day when EU (the European Union) set a January 3 deadline to rule on the Tata bid for Corus, Business Line contacted Mr Roy Montague-Jones of Richards Butler LLP, a London-based law firm, to know about the options before Tata.

Among `notable work' of Mr Montague-Jones, on www.richardsbutler.com is his advice for Wockhardt, in its acquisition of CP Pharmaceuticals (Holdings) Ltd, and also work for Macquarie Bank and Rabobank International, in connection with issues of Global Depositary Receipts and Foreign Currency Convertible Bonds.

"The starting point is method used to take control of Corus," explains Mr Montague-Jones, speaking on the issue that is in limelight. "Tata's bid is proceeding by scheme of arrangement. This is only possible in cases where the board of the target company recommends the offer. One benefit of this route is that it allows Tata to save up to one half per cent of the total value of its bid which would otherwise be payable as stamp duty on the acquisition by Tata of the shares in Corus." Thus, a successful scheme of arrangement allows the stamp duty charge to be avoided.

"In order to implement the scheme of arrangement, the shareholders of Corus must pass resolutions which are supported by a majority in number of the Corus shareholders representing 75 per cent or more of the votes carried by all the Corus shares. If this happens, subject to confirmatory order of the High Court, Tata would acquire 100 per cent control, and would acquire the shares of even those Corus shareholders who voted against the resolutions."

What can happen then? "Once Tata has 100 per cent control, it can then secure the passing of the further resolutions necessary to re-register Corus as a private company and complete the security package," says Mr Montague-Jones.

CSN offer

Now, let us look at the other bidder CSN. "Assuming it formally bids, CSN will make a takeover offer. Unlike a scheme of arrangement, this would be an offer made to each Corus shareholder which Corus shareholders would be invited to accept," distinguishes Mr Montague-Jones.

"While a person making a takeover offer can obtain legal control of a UK company if it secures shares carrying over 50 per cent of the votes, it can only take the company private and authorise the grant of security by the target company in respect of liabilities incurred for the purpose of the acquisition of the target company if it secures 90 per cent of the target."

Thus, the takeover and the completion of the security package are two separate operations, with the acquisition of control of Corus coming first.

Interestingly, there are `the minority squeeze-out' provisions of the UK Companies Act that enable the offeror who has secured a 90 per cent holding in a target company to buy out the balance compulsorily. "Therefore, CSN would in practice need to secure at least 90 per cent to complete the security package in favour of the financiers of its bid, and this is likely to be a condition of the financing that it is arranging," reasons Mr Montague-Jones.

"If CSN formally launches an offer and Tata wants to increase the price it is offering, it will need to convert the scheme of arrangement to an offer, which is the same mechanism as used by CSN."

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